Oak Ridge Council looks at ways to save

Thursday

Apr 25, 2013 at 8:13 PMApr 25, 2013 at 8:14 PM

Oak Ridge City Council will look at debt refunding options and capital outlay note restructuring to see if either can help with the city’s debt obligations relating to water and sewer rates and the general fund.

by Beverly Majors/Staff

Oak Ridge City Council will look at debt refunding options and capital outlay note restructuring to see if either can help with the city’s debt obligations relating to water and sewer rates and the general fund.

Chris Bessler of Cumberland Securities and the city’s Finance Director Janice McGinnis talked to Council members about proposed refinancing of city bond schedules during this week’s Council work session at the Municipal Building.

Refinancing the bond schedules would provide savings at a lower interest rate and “flattening” of the payment schedule to reduce future rate impacts — something the Council will be looking at in May.

Option No. 1 of the proposal, according to information from McGinnis, reflects a refunding and restructuring of the Refunded Obligations and a capital outlay note that essentially retains the current payment schedule beginning in 2015 and includes about $2 million of new bond proceeds. Option No. 2, McGinnis wrote, is similar but restructures and extends the Refunded Obligations and capital outlay note resulting in a lower annual debt service payment of $400,000 to $500,000 per year until 2023.

Option No. 1 results in higher overall net present value savings, while Option No. 2 reduces the annual debt service payment until 2023 and reduces some of the near term pressure on the sewer rates that will result from the $18 million State Revolving Fund loan.

“With the Option One $700,000 savings, you’ll have breathing room for this season,” Bessler said. The savings in Option Two would save about $500,000, but extend the debt, he said.

City Manager Mark Watson said Option One presents “a high degree of cost for the bond and Option Two provides greater relief.”

Council member Charlie Hensley said, “I’m concerned about the maintenance cost long term. I’m not sure we’re getting the whole picture.”

Council member Chuck Hope also questioned the proposal, calling it “Reaganomics.”

“We’re paying $1.8 million to save $700,000,” he said. “We have no plan to build the capital project reserve and a future council will have to deal with it. We’re going to have to increase the rate no matter what.”

McGinnis said the proposal was designed to “alleviate some of the rate issue, take the pressure off.”

“My opinion is it’s fool hearty to increase our indebtedness to make people a little bit happier,” said Council member Anne Garcia Garland.

“I’m just flabbergasted (about a possible increase in debt),” said Council member Trina Baughn. She also asked the city manager to “go on the record” that the proposal and indebtedness is not all because of the Environmental Protection Agency mandate.

The EPA administrative order requires the city to update its 70-year-old sewer system by 2015 or face fines. The city received the administrative order in 2010, and the estimated cost for the project could cost $24 million to complete.

Watson said the funding would be used for other maintenance-related projects, such as putting a new roof on the water plant.

Hensley said the city has to “get the best deal for the taxpayer,” but Baughn said the proposal “sounds like a used car salesman.”